What is Bitcoin?
Bitcoin is a form of digital currency created in 2009 by an unknown person using the alias Satoshi Nakamoto.
To keep it simple. Think of each Bitcoin as a computer file that’s stored in a ‘digital wallet’ app on a smartphone or computer.
People can send Bitcoins (or part of one) to your digital wallet, and you can send them to other people.
Every single transaction gets recorded on a public ledger called the blockchain.
But what is Bitcoin used for?
Bitcoin, often described as a cryptocurrency, a virtual currency or a digital currency. Is a type of money that is completely virtual.
It’s like an online version of cash and used to pay for things. You can book hotels on Expedia, shop for furniture on Overstock and buy Xbox games using it. But much of the hype is about getting rich by trading it.
The price of Bitcoin fluctuates constantly and open-market bidding determines the price on crypto exchanges. The same way that stock and gold prices fluctuate and trade on exchanges.
But what is the difference?
💡 It differs from fiat digital currencies in 5 important ways………
Bitcoin’s most important characteristic is decentralization. No single institution controls the network.
Bitcoin users around the world control it. It’s maintained by a group of volunteer coders and organizations. But they can’t force a change in the rules of the protocol because all users are free to choose what software they use. Also, it’s run by an open network of dedicated computers spread around the world. No banks or government institutions control the money.
Bitcoin solves the “double spending problem” of electronic currencies through a combination of cryptography and economic incentives. In electronic fiat currencies, the banks fulfill this function, which gives them control over the traditional system.
With bitcoin, a distributed and open network maintains the integrity of transactions. Which no one owns.
2. Limited Supply
Fiat currencies (dollars, euros, yen, etc.) have an unlimited supply.
Central banks can issue as many as they want and can attempt to manipulate a currency’s value relative to others. Holders of the currency (and especially citizens with little alternative) bear the cost.
Think inflation! The more money issued, the less it is worth.
The underlying algorithm controls the supply of bitcoin. A small number of new bitcoins trickle out every hour. This will continue to do so at a diminishing rate until a maximum of 21 million comes into existence.
This makes it more attractive as an asset. In theory, if demand grows and the supply remains the same, the value will increase.
Divisibility ensures that money can be broken down into smaller units used in exchange for goods of varying values.
A “satoshi” is the smallest unit of a bitcoin. It is one hundred millionth of a bitcoin (0.00000001) – at today’s prices, about one-hundredth of a cent.
This could conceivably enable micro transactions that traditional electronic money cannot.
Why buy Bitcoin?
Because mainstream investors and entrepreneurs see bitcoin as a legitimate investment. Like stocks, bonds, or commodities.
The largest companies are utilizing crypto and blockchain technology to disrupt markets. If you don’t believe me — read this: Why are Cryptocurrencies trending in the news?
Also, regulation is occurring and the SEC will soon approve Bitcoin ETFs.
Regulation is the first step to adoption.
Unsure how to buy crypto? Read my full article here!
Besides diversifying your investments. Wouldn’t you want to be at the forefront of innovation and technology? In the next few years, it would be a shame to look back at Bitcoin and talk about the “what if.”
Take Apple, the company behind the iPhone.
A $1,000 investment made in early August 2008 would be worth more than $9,222.50 as of August 2, 2018.
Over 9x as much, including price appreciation and excluding dividends.